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April 2012 Analysis of the Energy Savings Certificate Markets
Index PAT Mechanism Regulatory News REC Trade Report REC Project Statistics Green News About REConnect
The rules relating to the Energy Efficiency Perform, Achieve and Trade mechanism (PAT)
were notified by the central government recently. We present the highlights below (for an
From Managements Desk
introduction to the PAT scheme see our newsletter Vol. 9 of May 2011): Dear Readers,
The PAT mechanism1 was notified recently. This will operationalize the mechanism. Broadly,
the mechanism requires designated consumers the largest companies in the 8 most energy April trading session was the pleasant sur-
intensive industries in the country to meet certain energy efficiency norms. The program is prise. Traded price was Rs 2201/ REC (32%
managed by the Bureau of Energy Efficiency (BEE). higher than the floor price). But the bigger
surprise was the robust demand of 264,000
What is required of the Designated Consumers? RECs - in the very first month of the compli-
Approximately 560 industrial units in 8 energy intensive sectors are considered Designated ance year. It is perhaps an indication of en-
Consumers (DCs). The PAT notification provides a specific target for the end of the first cycle forcement expectation.
a period of three years that the DC has to achieve. As an example, NALCOs Aluminium unit
in Korpaut district is a DC. Its target is to reach 0.307 tons of oil equivalent (TOE) per ton of In the main article this month, we have devi-
production from the current 0.325 TOE (a reduction of 6.1%). This target is specific to each ated from our focus on the REC markets. But
unit, and is based on its recent energy consumption pattern. For examples, another aluminum we believe that its with a very good reason.
unit Hindalcos plant in Muri has a target of 0.598 TOE (vs 0.674 TOE at present; a reduction The recent notification of rules of the PAT
of 11.3%). mechanism will kick-off and exciting new mar-
ket of Energy Savings Certificates. We present
Reduction Target in Specific Energy Consumption in Aluminum Industry a detailed analysis in the article.
-Team REConnect
1The rules framed are called Energy Conservation (Energy Consumption Norms and Standards for Desig-
nated Consumers, Form, Time within which, and Manner and Preparation and Implementation of Scheme,
Procedure for Issue of Energy Saving Certificate and Value of Per Metric Ton of Oil Equivalent of Energy
Consumed) Rules, 2012. Since it will be impossible to come up with an abbreviation of this name, we will
stick to calling it the PAT mechanism or PAT Rulesin this article
http://220.156.189.23/schemes/documents/nmeee/pat/PAT_Rules_English.PDF
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There is a further provision of a check-verification that BEE can order. This will require another Energy Auditor to independently verify the
submissions of the DC and the opinion of the auditor. Penalty provisions are in place in case of mis-reporting and taking unfair advantage
of the trading scheme.
ESCerts will be issued to DCs on the basis of the annual return and the Energy Auditors
report, and will be adjusted against the entitlement in the final year of the 3 year cycle. Each
ESCert will represent one TOE, and will be tradable in the power exchanges. The ESCert will
have a value assigned to it which will be calculated on the basis of price and consumption
mix of coal, oil, gas and electricity of all DCs. The value assigned to 1 TOE for 2011-12 is Rs
10,154.
The rules pertaining to trading of ESCerts leave some important questions unanswered and are silent on other important matters. Will
ESCerts be traded only once and then retired (like in the case of REC) or can they be traded multiple times? It is also unclear what would be
the purpose of the value of 1 TOE as specified in the rules. Is it a penalty price?
An important aspect the Rules leave out is the provision to issue ESCerts to non-DCs for energy efficiency measures. This could have been a
great monetary incentive and potentially led to the development a broad-based energy efficiency market going beyond the DCs. Another
aspect is the interaction and transferability between REC and ESCerts this can be easily done by allowing companies that purchase RECs
beyond their RPO requirement to count zero TOE for renewable energy consumed. Similarly, what will the TOE for companies that gener-
ate and consume renewable power but claim RECs (and therefore essentially consume regular power)?
Conclusion
Compared to other environmental markets like REC and carbon credits, the PAT mechanism is complex. There is a significant monitoring
and reporting requirement which puts an onerous burden on the DCs and relies on the Energy Auditor to a great extent.
ESCerts will be issued annually. This will make the trading market in ESCerts illiquid. At the same time, there are several unanswered ques-
tions regarding the finer details of trading of ESCerts. However, there is time to sort out those details as trading is unlikely to begin for an-
other 1.5 years
Overall, its great to see another environmental market kick-off. This will be a very different market from RECs, but lets hope that its fol-
lows the same trajectory in terms of market participation and development.
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Index PAT Mechanism Regulatory News REC Trade Report REC Project Statistics Green News About REConnect
Recently a notification regarding the applicability and enforcement of RPO regulations was made by Chhattisgarh State Electricity Regula-
tory Commission (CSERC). Previously, the CSERC RPO 2011 regulation specified that the RPO will be applicable to the captive user(s) and
open access consumer(s) from the date as would be notified in the Official Gazette. This notification specified that the renewable
purchase obligation will be applicable from April 01,2012 for the captive user(s) and open access consumer(s) .
Those captive users and open access consumers who have purchased RECS in the last financial year 2011-12 can adjust against their
renewable purchase obligation for 2012-13. This notification will be little disappointing for those who bought RECs later during the last
financial year at a higher price.
Tamil Nadu Electricity Regulatory Commission (TNERC) order on Generation, Distribution and Transmission charges
The TNERC, recently released an order on the Determination of Tariff for Generation & Distribution of TANGEDCO and the Intra-State
Transmission Tariff of TANTRANSCO. Some of the key highlights have been mentioned below.
Transmission Charges:
The transmission tariff for long term & short term open access has been increased by about two and half times from the existing tariff.
The transmission charges are as follows
Wheeling Charges:
The wheeling charges for the year 2012 13 have been increased from Rs. 14.74 paise/unit to Rs. 23.27 paise/unit.
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Review of REC Trading-April 2012 S
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Index PAT Mechanism Regulatory News REC Trade Report REC Project Statistics Green News About REConnect
Aprils trading session was the first of the new compliance year (2012-13). Both volume and price expectations were low, given that there
is no real pressure on the obligated entities to buy this early in the year. Considering that, both prices and volumes surprised IEX and
PXIL traded price was Rs 2,201/ REC (32% higher than the floor price of Rs 1,500; we believe that prices and volume this month are not
comparable with March 2012 as the drivers for buyers and sellers were very different last month).
The total demand was for 263,913 RECs. This appears high compared to last month (demand last month was for 389,000 RECs; last April
was 260) given that this is the first month of the compliance year.
Supply was impacted by low issuance of RECs (118,000 in April vs 204,000 in March) likely due to reduced urgency on part of generators
to claim RECs. Total available RECs were 157,000, of which 133,000 were bid for sale (85% participation). At this stage in the market, the
participation level was high. Of the total bid for sale, only 54% were sold indicating sellers willingness to hold and expectation of even
higher prices later in the year.
With the new floor and forbearance price from this financial year coming in picture, todays price will bring some smile on the sellers. The
relatively high demand and prices are an indication of expectation of enforcement.
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Status of projects in REC Mechanism S
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Index PAT Mechanism Regulatory News REC Trade Report REC Project Statistics Green News About REConnect
Accredited Capacity : 2767.148 MW
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Month: April 12 www.reconnectenergy.com
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Status of projects in REC Mechanism S
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Index PAT Mechanism Regulatory News REC Trade Report REC Project Statistics Green News About REConnect
Registered Capacity : 2339.733 MW
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Green News Vol. XX
Index PAT Mechanism Regulatory News REC Trade Report REC Project Statistics Green News About REConnect
IFC may invest $40 million in Inox Groups wind energy businesses
International Finance Corporation (IFC) is looking to invest up to $40 million to acquire stake in a subsidiary of Gujarat Fluoro-
chemicals Ltd that runs its wind power generation business. The investment arm of the World Bank will also provide a senior
debt of $90 million to INOX Renewables Ltd, part of the $2 billion INOX Group.
http://www.vccircle.com/500/news/ifc-may-invest-40m-in-inox-group%E2%80%99s-wind-energy-biz
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Status of RPOs across various states in India - As on April 24 , 2012 S
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State Status of Regulation 201213 RPO RPO on CPP? RPO on OA Penalty ?
Obligation Users?
JERC for Goa and Final 2.60 % + 0.40 % Yes Yes Yes (RECmax)
UTs
JERC for Manipur Final 4.75 % + 0.25% (Man) Yes Yes Yes (RECmax)
and Mizoram 6.75% + 0.25% (Miz)
Nagaland Final 7.75 % + 0.25% Yes Yes Yes (RECmax)
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Past Newsletters
Dear Readers,
Our previous newsletters are available at our website www.reconnectenergy.com and can be downloaded from :
http://www.reconnectenergy.com/rec/index.php/newsletters-on-rec-mechanism.html
The summary of our previous newsletters we have published is available below.
Volume IX: May 2011
REC Market: Another round of Regulatory Push Required
Feedback:
We wholeheartedly thank you for providing your valuable feed-back on our last newsletter. Your feedback on the
newsletter keeps us motivated and would certainly help us to improve the quality of it. Kindly keep writing to us.
We are eager hear your views.
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Services Provided by REConnect S
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Index PAT Mechanism Regulatory News REC Trade Report REC Project Statistics Green News About REConnect
Services for Obligated Entities (Distribution Companies / Open Access Consumers / Captive Consumers)
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Month: April 12 www.reconnectenergy.com
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About REConnect S
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Index PAT Mechanism Regulatory News REC Trade Report REC Project Statistics Green News About REConnect
Energy Efficiency Certificate markets in USA, Europe and Australia etc. Suresh Kumar (for RPO)
Worked with Indian Energy Exchange (IEX), Indias leading power ex- suresh.kumar@reconnectenergy.com
+91 99727 24727
change, and have extensive knowledge and experience of power
markets Mumbai
Ramkumar K
Alumnus of Columbia University, an Ivy League University in USA, and ramkumar@reconnectenergy.com
IIT Bombay +91 99303 59992
Pune
Mohit Tyagi
mohit.tyagi@reconnectenergy.com
+91 96650 42397
Volume: XX Page
Month: April 12 www.reconnectenergy.com
Contents of this newsletter are for informational purposes only
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